Munich Personal RePEc Archive

Locational signaling and agglomeration

Berliant, Marcus and Yu, Chia-Ming (2012): Locational signaling and agglomeration.

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Abstract

Agglomeration can be caused by asymmetric information and a locational signaling effect: The location choice of workers signals their productivity to potential employers. The cost of a signal is the cost of housing at that location. When workers' marginal willingness to pay for housing is negatively correlated with their productivity, skill-biased technological change causes a core-periphery equilibrium where only the core-periphery (partially stratified) equilibria are stable. When workers' marginal willingness to pay for housing and their productivity are positively correlated, skill-biased technological improvements will never result in a core-periphery equilibrium. Location can at best be an approximate rather than a precise sieve for high-skill workers.

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